Defendants Allegedly Fraudulently Conspired to Obtain over $1,000,000 in Equipment From Cisco under the SMARTnet Service Contract Program
SAN JOSE, Calif. – LAWFUEL – California Law – A federal grand jury in San Jose has charged four Minnesota residents with defrauding Cisco Systems, Inc. of over $1 million computer networking equipment, United States Attorney Scott N. Schools announced. The indictment was unsealed today.
Under the SMARTnet service contract program, Cisco agrees to provide customers with technical support, including advance hardware replacement. Advance hardware replacement allows customers to obtain replacement equipment from Cisco immediately, without having first to return the broken part.
The grand jury indicted the following Minnesota residents:
· Mark B. Faris, 49, of Minnetonka, Minnesota;
· Stephen D. Chicoine, 56, of Eden Prairie, Minnesota;
· Charles L. Lytle, 35, of Shakopee, Minnesota; and
· Amy M. Ihrke, 39, of Jordan, Minnesota
According to the indictment, all four Minnesota defendants worked for Interlink Communications Corporation, a company based in Edina, Minnesota, that bought and sold new and used Cisco networking equipment. Faris was Vice President of Interlink, Chicoine was President, Lytle was a Sales Representative, and Ihrke was Senior Sales Support Representative. According to public records, Interlink is now operating as Zykco USA LLC.
From at least January 2001 to August 2002, the defendants and others allegedly conspired to submit fraudulent SMARTnet service contract claims to Cisco to receive “replacement” computer networking parts to which they were not entitled. The defendants and others then sold these “replacement” parts to customers and deposited the payments from those customers in Interlink’s bank account. The defendants and others disguised their fraudulent acquisition and sale of the “replacement” parts by altering their internal purchase, sale, and inventory accounting system to make it appear as if the “replacement” parts had been legitimately acquired.
An affidavit in support of a search warrant, filed earlier in federal court in Minneapolis, Minnesota, states that a review of 125 SMARTnet claims made by Interlink to Cisco in a single five-month sample period–January 2002 to May 2002–as well as other evidence, demonstrated that all but one of these claims was fraudulent. Moreover, this affidavit details a number of examples of Cisco equipment that Interlink fraudulently obtained, with retail values ranging from $4,995 to $34,995.
Faris, Chicoine, Lytle, and Ihrke were charged with one count of conspiracy to commit mail fraud and wire fraud and aiding and abetting, in violation of 18 U.S.C. §§ 371 and 2; Faris, Chicoine, and Lytle were charged with one count of conspiracy to commit money laundering and aiding and abetting, in violation of 18 U.S.C. §§ 1956(h) and 2; and Lytle was charged with 15 counts of mail fraud and 15 counts of wire fraud, and aiding and abetting, in violation of 18 U.S.C. §§ 1341, 1343, and 2. Faris, Chicoine, Lytle, and Ihrke may also forfeit fraudulently obtained property and proceeds, pursuant to 18 U.S.C. § 981(a)(1)(C) and 28 U.S.C. § 2461(c). However, any sentence following conviction would be imposed by the court after consideration of the United States Sentencing Guidelines and the federal statute governing imposition of sentences, 18 U.S.C. § 3553.
The maximum statutory penalties for the mail fraud and wire fraud conspiracy and all but one mail fraud and one wire fraud charge are 5 years in prison and a $250,000 fine (or twice the gain or loss resulting from the fraud). Because one mail fraud violation and one wire fraud violation occurred after the effective date of the Sarbanes-Oxley Act, the maximum statutory penalties for those two violations are 20 years in prison and a $250,000 fine (or twice the gain or loss resulting from the fraud). The maximum penalties for the money laundering conspiracy are 10 years in prison and a $250,000 fine (or twice the amount of the criminally derived property involved in the transaction).
An indictment contains only allegations against an individual and, as with all defendants, Faris, Chicoine, Lytle, and Ihrke must be presumed innocent unless and until proven guilty.
Faris, Chicoine, and Ihrke were arrested this morning and were arraigned on the indictment at the United States courthouse in Minneapolis at 3:00 p.m. Central Daylight Time. They were released on $25,000 bond. Lytle is expected to self-surrender and a date for his appearance in San Jose has not yet been set. The three defendants arrested this morning are scheduled to make an appearance in federal court in San Jose, Calif., on March 29, 2007, at 9:30 a.m. before U.S. Magistrate Judge Patricia V. Trumbull.
This is the second fraud scheme involving Cisco’s SMARTnet service contract program charged this year in the Northern District of California. Last month, in United States v. Michael A. Daly, a Massachusetts man was charged in San Jose for a similar scheme. At this time, the investigation has not found evidence to suggest that the cases are related.
Investigation of SMARTnet fraud will continue. Individuals and companies involved in SMARTnet fraud who wish to turn themselves in or cooperate with law enforcement should contact the United States Postal Inspection Service, at 415-778-5800; Internal Revenue Service–Criminal Investigation, at 415-522-6000; United States Secret Service, at 415-744-9026; or other federal law enforcement agency.
Matthew A. Lamberti is the Assistant United States Attorney who is prosecuting the case, with the assistance of legal assistant Susan Kreider. The prosecution is the result of an investigation by the United States Postal Inspection Service, Internal Revenue Service–Criminal Investigation, and United States Secret Service. Cisco also assisted the investigation.
Further Information:
A copy of this press release may be found on the U.S. Attorney’s Office’s website at www.usdoj.gov/usao/can.
Electronic court filings and further procedural and docket information are available at https://ecf.cand.uscourts.gov/cgi-bin/login.pl.
Judges’ calendars with schedules for upcoming court hearings can be viewed on the court’s website at www.cand.uscourts.gov.
All press inquiries to the U.S. Attorney’s Office should be directed to Luke Macaulay at (415) 436-6757 or by email at Luke.Macaulay@usdoj.gov.
